Latest Trends

• Loans growth faster at 9.3% yoy (vs. 9%) o n third consecutive months of acceleration in business, partly offset by slower household.

• Applications increas ed mom, underpinned by six consecutive months of yoy growth in business. Although approvals declined mom, it recorded three consec utive months of double -digit yoy growth. Approvals rate (both household and business) declined below 50% mark.

• Deposits yoy growth accelerated faster, res ulting in lower LD ratio with excess liquidity increased to RM293bn.

• Average lending rate (ALR) slightly lower.

• Asset quality improved to strongest level. Capital ratios declined post dividend payouts but remained robust.

Our Take

• Continued business loans growth turnaround and s trong business leading indicators reaffirm our view that business loans growth will help to mitigate the expected slowdown in household loans growth. Thus, we are keeping our 2014 loans growth projection at 9%. For 2015, due to lower level of economic activities, we are projecting loans growth of 8%.

• Despite lower ALR, average 4Q14 (first two months) flattish vs. 3Q14, providing room to mitigate rising cost of funds . New lending framework should have limited impact with some upside bias on ALR as banks may use this opportunity to exercise more discipline in adhering to risk -based pricing.

• Asset quality for c onstruction purpose started to improve after sharp plunge in Sep 14, reaffirming Maybank’s view that the lumpy default is isolated or case specific and not systemic.

• Robust capital ratios to support active capital management .

Risks

• Risk of recession and its impact on asset quality, portfolio losses (MTM and realized), non-interest income growth as well as more macro prudential measures.

Rating

NEUTRAL

Positives

• Best proxy to the impact of ETP and RAPID(sector with third highest multiplier effect), domestic consumerism (albeit slower) and economy, strong asset quality, robust capital ratios, capital management and M&As .

Negatives

• Competitive pressure on margin, higher livingcosts and tougher business environment increase the possibility of rise in delinquencies , portfolio losses from foreign outflow and rising burden of low income group.

Top Picks

• Maybank, RHB Cap and AFG while CIMB is Trading Buy.

Source: Hong Leong Investment Bank Research - 2 Jan 2015